One Chart Signal Could Send This Tech Giant Lower

Salesforce (CRM) saw a brutal sell-off in 2022. But it strongly turned things around in the first half of this year.

Salesforce is the market leader in “customer relationship management” software. It offers a wide array of services from billing automation to email marketing to data analysis and beyond.

And since its December 2022 low, it has rallied almost 90%. Its market cap has grown to around $230 billion (up from $130 billion).

But after peaking on July 19, CRM has struggled for direction.

Instead, it flipped between short-term peaks and troughs due to changes in momentum.

Now momentum is once again about to touch a key level.

So let’s check on what’s in store from here…

Rally Stalled

In the chart of CRM below, you can see the clear uptrend that began in December of last year.

That rally came after a 13-month fall where CRM lost 60% of its value. But as momentum slowly turned higher last December, CRM established a base:

Salesforce (CRM)

Source: eSignal

It rallied strongly as the relative strength index (RSI) broke through resistance (green line). And the RSI gained a firm holding in the upper half of its range.

Adding to the bullish sentiment, the shorter-term 10-day moving average (MA, red line) crossed above the 50-day MA. Then both MAs trended higher throughout CRM’s rally.

But CRM’s strong uptrend came to an end on July 19 (“A”) – the same day that the Nasdaq peaked.

CRM retraced as the RSI inverted and tracked lower (left red circle). After that, it transitioned into a sideways pattern.

We last checked in on CRM on August 14 (red arrow). At that time, the RSI had just touched oversold territory (the left orange circle). And we were looking for a potential bounce.

While that move didn’t happen immediately, CRM did rally soon after.

CRM then hit another short-term peak in September. And it reversed again when the RSI fell over (right red circle).

Take another look:

Salesforce (CRM)

Source: eSignal

Momentum swings like these, along with the two MAs crossing back and forth, are common when a stock is trading in a sideways pattern.

The RSI trough pattern repeated in October (middle orange circle). But CRM’s rally initially stalled when the RSI was unable to break through resistance.

Yet later that month, the RSI formed another “V” (right orange circle) and surged. This time, the RSI was able to break through resistance and keep tracking higher. That let CRM’s current rally take off.

But the RSI recently touched overbought territory…

So what should we look for from here?

Pulled Lower

When the RSI made inverse “Vs” and retraced from near overbought territory, CRM also slipped lower.

We can see that as CRM traded in its sideways pattern. It also happened when CRM was rallying strongly in the first half of the year.

That’s what I’ll be looking for next.

A sharp reversal from the RSI could set up a potential mean reversion trade to the short side.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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